Osborne's Budget Has Something For Tories and Liberal Democrats

George Osborne tried to negotiate the contradictions between austerity and growth and please both parties in the coalition.

By Amiel Ungar

First Publish: 3/23/2012, 6:39 AM

Osborne Presents Budget

Reuters

The British budget unveiled yesterday by Chancellor of the Exchequer George Osborne was a coalition budget.

The coalition between the Conservatives and the Liberal Democrats is the first British coalition since the National Unity government of the Second World War and therefore had to satisfy Conservatives, while allowing the Liberal Democrats to claim that they have achieved an impact.

Osborne also faced the need to steer between two competing trends in European budgetary politics. The recently dominant trend of budgetary discipline has found its way into the European budgetary Treaty and calls for austerity if needed. On the other hand, even austerity is not going to solve fiscal problems if a country cannot generate enough economic growth.

Osborne had the unenviable task of reconciling the twin aspirations and squaring the circle.

The Conservatives got a continuation of the austerity policy, as Osborne warned that an abandonment of the policy would lead to higher interest rates. The Conservatives also pared down the highest tax bracket from 50% to 45% on the grounds that treasury research had demonstrated that the measure had not brought in the income it was projected to, but did discourage investment.

The major tax cut was a progressive lowering of the Corporation tax to make the British rate lower than the continent and the United States, in a bid to attract investment. In addition to encouraging investments in British industry, the move will drive the UK further away from the European Union which is trying to harmonize its tax system and prevent countries from lowering taxation rates to lure industries from each other. Osborne justified his policy as designed to help Britain earn her way out of trouble.

The need to encourage British business was coupled with a pledge to end the deindustrialization of Britain and restore industrial jobs. The Cameron government wants to show that it is not a second edition of Thatcherism, irrespective of the affection that Conservative activists have for the "Iron Lady".

Thatcher's policy got Britain moving, but created a split between the north and south of the country. The political map shows the south as conservative blue and the north as Labour red, with dots of Liberal Democrat yellow in all parts of the country.

The coalition is determined to woo Labour's northern bastions and is throwing in an ambitious modernization and extension of the rail network that will benefit the north, the main loser in the decline of British industry.

Although assailed as a rich man's budget, Osborne incorporated Liberal Democrat demands and also hit the owners of expensive properties - including those who hide such properties in corporate structures and tax relief for the wealthy.

He increased taxes on tobacco with an eye to discouraging smoking and decrease health costs.

The most controversial aspect of the budget is the doing away of theage-related allowance" This has been a tradition from the time of Winston Churchill, under which pensioners start paying tax at a higher income level than workers.

Osborne claims that the rise in the tax-exempt amount for everyone means that the pensioners would not be hurt and this would contribute to simplifying taxation.

The so-called granny tax and the abolition of the 50% tax bracket. provide Labour with its best openings for attacking the budget.